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From Flashcardlet > Test 1 Macro Econ > Flashcards

Test 1 Macro Econ Flashcards

(72 cards)

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1
Q

scarcity

A

the limited nature of society’s resources given society’s unlimited wants and needs

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2
Q

economics

A

the study of how people allocate their limited resources to satisfy their nearly unlimited wants

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3
Q

what are the five foundations of economics

A 
incentives 
trade offs 
opportunity cost 
marginal thinking 
trade
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4
Q

incentives

A

factors that motivate a person to act or exert effort
can be positive/negative direct/indirect
unintended consequences

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5
Q

opportunity cost

A

the highest valued alternative that must be sacrificed in order to gain something else

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6
Q

marginal thinking

A

requires decision makers to to evaluate wether the benefit of one more unit of something is greater then its cost

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7
Q

economic thinking

A

requires a purposeful evaluation of the available opportunities to make the best decision possible

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8
Q

trade

A

the voluntary exchange of goods and service between 2 of more parties

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9
Q

market

A

bring buyers and sellers together to exchange goods and services

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10
Q

comparative advantage

A

the situation where an individual can produce at a lower opportunity cost than a competitor can

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11
Q

positive statements

A

can be tested ad validated it describes “what is” fact

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12
Q

normative statements

A

an opinion that cannot be tested or validated “what ought to be”

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13
Q

ceteris paribus

A

concept under which economists examine a change in one variable while holding everything else constant

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14
Q

endogenous factors

A

variables that can be controlled for in a model

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15
Q

exogenous factors

A

variables that cannot be controlled for in a model

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16
Q

production possibilities frontier (PPF)

A

a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently
expands if population grows

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17
Q

law of increasing relative cost

A

states that the opportunity cost of producing a good rises as society produces more of it

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18
Q

absolute advantage

A

the ability of one producer to make more than another with the same quantity of resources
even if absolute advantage in both goods, trading is till beneficial

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19
Q

how to determine trading price

A

between the 2 opportunity costs of the 2 markets participating

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20
Q

consumer goods

A

produced for present consumption

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21
Q

capital goods

A

help produce other valuable goods and services in the future

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22
Q

investment

A

the process of using resources to create or buy new capital

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23
Q

What is the opportunity cost of investing in new capital

A

the consumer goods you could have had in the same amount of time

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24
Q

market economy

A

resources are allocated among households and firms with little or no government interference

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25
invisible hand
guides resources to their highest valued use
26
competitive markets
exist when there are so many buyers and sellers that each has only a small impact on the market price and output
27
imperfect markets
one in which either the buyer or seller has an influence on the market price
28
monopoly
exists when a single company supplies the entire market for a particular good or service
29
quantity demanded
the amount of a good or service that buyers are willing and able to purchase at the current price
30
the law of demand
all others equal quantity demanded falls when price rises and rises when price falls
31
market demand
the sum of all the individual quantities demanded by each buyer in the market at each price
32
what causes a shift in the demand curve
``` income related goods tastes expectations number of buyers ```
33
normal and inferior goods
normal: consumers buy more as income increase inferior: consumers buy less as income increases
34
Compliments and Substitutes
Complements: positively correlated Substitutes: inversely related
35
What happens to demand and supply when we expect prices to rise in a week
Demand increases, because buyers want lowest price | Supply decreases, because sellers want highest price
36
law of supply
all others equal, the quantity supplied of a good rises when the price rises and vise versa
37
what causes a shift in the supply curve
``` cost of inputs changes in technology taxes and subsidies number of firms price expectations ```
38
equilibrium
occurs at the point where the demand curve and the supply curve intersect
39
equilibrium price and quantity
price: the price at which the quantity supplied is equal to the quantity demanded also called market clearing price quantity: the amount at which the quantity supplied is equal to the quantity demanded
40
law of supply and demand
the market price of any good will adjust to bring the quantity supplied and quantity demanded into balance
41
shortage and surplus
shortage: occurs when the quantity supplied is less than the quantity demanded (raise price for eq) surplus: occurs when the quantity supplied is greater than the quantity demanded (lower price for eq)
42
what happens to quantity and price when demand and supply increase
quantity goes up but price could either go up or down
43
what happens to quantity and price when demand and supply go down
quantity goes down but price could either go up or down
44
what happens to quantity and price when demand increases but supply decreases
quantity can either go up or down but price goes up
45
what happens to quantity and price when demand decreases but supply increases
quantity can either go up or down but price goes down
46
price controls and why they are used
an attempt to set prices through government involvement in the market
47
price ceilings
legally established maximum prices for goods or services ease perceived burden on society
48
black markets
illegal markets that arise when price controls are in place
49
what is the effect of binding price ceilings in the short run
Quantity demanded becomes greater than quantity supplied causing shortages
50
what is the effect of binding price ceilings in the long run
supply and demand become more elastic making the shortage greater and increasing demand lowers black market prices because of substitutes
51
price grouping laws
place a temporary ceiling on the prices that sellers can change during times of emergency
52
price floors
legally established minimum prices for goods or services | result from the political pressure of suppliers to keep prices high
53
what are the effects of a binding price floor in the short run
quantity demanded is lower and quantity supplied resulting in a surplus
54
what are the effects of a binding price floor in the long run
supply and demand become more elastic causing the surplus to expand quantity supplied becomes larger
55
how do businesses combat a raise in minimum wage
replace workers with machines shorten hours offer reduced customer service relocate
56
does anything really change when minimum wage is non binding
no it just makes politicians look good to say they raised the minimum wage
57
welfare economics
branch of economics that studies how the allocation of resources affects economic well being
58
consumer surplus
difference between willingness to pay and what the buyer actually pays
59
willingness to pay/sell
the maximum/minimum price a consumer/seller is willing to pay/sell a good for
60
producer surplus
the difference between the willingness to sell and a price the seller receives must consider direct and opportunity costs
61
total surplus
the sum of consumer surplus and producer surplus | also known as social welfare
62
efficient
an outcome is efficient when an allocation of resources maximizes total surplus QS=QD
63
equity
the fairness of the distribution of benefits within the society
64
tax incidence
the burden of taxation on the party who pay the tax through higher prices regardless of whom the tax was imposed on
65
excise tax
taxes levied on a particular good or service | hard to ignore so rarely used
66
tax on buyers | tax on sellers
shifts D curve to left by amount of tax | shifts S curve to left by amount of tax
67
deadweight loss
the decrease in economic activity caused by market distortions
68
tax revenue and DWL when demand is inelastic
consumer bears most of tax little deadweight loss lots of revenue
69
tax revenue and DWL when demand is more elastic
suppliers absorb some of tax deadweight loss exists less revenue
70
tax revenue and DWL when demand is highly elastic
suppliers pay most of tax quantity supplied falls little revenue huge deadweight loss
71
who bears tax when demand is more elastic than supply
producers
72
who bears tax when demand is more inelastic than supply
consumers

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